Hanover must defend beauty schools from class-action suit: District Judge

by Lyle Adriano16 Nov 2016

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Hanover must defend beauty schools from class-action suit: District Judge

A US District Judge ruled yesterday that an insurer is obligated to protect its clients—the operators of three California beauty schools—in a proposed class action suit that alleges the operators failed to reimburse students for supplies or pay them for providing cosmetology services.

The judge pointed out that a wage-and-hour exclusion does not apply to one of the underlying claims.

Chief US District Judge Barry Ted Moskowitz found most of the claims in the underlying suit against Poway Academy of Hair Design Inc. and Beauty Boutique Inc. (BBI) fell within a policy exclusion for allegations of wage-and-hour violations, save for one—the students’ claim for reimbursement of supply costs.

Judge Moskowitz ruled that under this, Hanover Insurance Co. must defend its clients against the class action complaint. He also said that Hanover may be able to seek reimbursement for any sum that the beauty schools spent, if only to defend the uncovered wage-and-hour claims.

Poway Academy operates the “Bellus Academy” in Poway, California, while BBI operates two schools bearing its namesake in National City and El Cajon, California. Both companies held employment practices liability insurance with Hanover from 2014 and 2015.

Court documents noted that although the two policies covered claims of wrongful acts by the insured, they excluded coverage for claims of violations of federal, state and local wage-and-hour laws. Notably, Poway Academy’s policy had a special endorsement allowing for defense coverage of wage-and-hour claims up to $25,000.

In 2014, a former Bellus Academy student filed a putative class action complaint against the beauty schools in California state court. Hanover agreed to defend the companies under a reservation of rights to later challenge coverage. The insurer then sued the schools in 2015, seeking a declaration regulating its defense payments at $25,000.